Buy Aditya Birla Fashion & Retail For +21% Upside Says Motilal Oswal

Motilal Oswal has recommended Aditya Birla Fashion and Retail (ABFRL) as a buy with a one-year return of +21%. The brokerage has set a target price of Rs 350 for the stock, which is now trading just on the National Stock Exchange (NSE) for Rs 292.10 a share. According to the brokerage Consolidated revenue of ABFRL grew by 2x YoY to INR20.5b (7% beat), or 89% of preCOVID levels (2QFY20). Estimated LTL fell 11% as it saw limited store additions. TRENT clocked 25% YoY revenue growth, with a 46% addition in its area footprint. The gross margin of ABFRL improved significantly (590bp YoY) to 53.4% (~340bp above pre-COVID levels) on lower mark downs and a higher share of private labels. EBITDA came in 43% higher than our estimate at INR3.1b v/s an operating loss of INR76m in 2QFY21 (and INR3.3b in 2QFY20). Net profit stood at INR59m v/s an estimated loss of INR835m, according to the research report of the brokerage. According to Motilal Oswal, Net debt of ABFRL stood at INR8.7b v/s INR5.3b/INR12b as of FY21/1QFY22 end. The profitability and working capital unwind have reduced net debt QoQ. Lifestyle: Revenue grew by 2.2x YoY to INR11.5b (92% of pre-COVID levels), with EBITDA up by 3.3x YoY at INR2.1b. Pantaloons: Revenue grew 80% YoY to INR6.6b (27% below pre-COVID levels), with EBITDA at INR1.2b. Ethnic Wear: Revenue grew by ~5.8x YoY to INR0.6b, with an EBITDA of INR10m v/s an operating loss of INR70m QoQ and INR40m YoY.Advertisement According to Motilal Oswal, the management expects a strong and sustained recovery on the back of tailwinds from the festive season and opening up of the economy after the lifting of COVID-related restrictions. ABFRL witnessed a margin improvement on an improved share of Retail and private labels, lower mark downs, and cost control measures. We factor in a revenue/EBITDA CAGR of 7%/16% over FY20-23E and estimate Ind AS 116 EBITDA at INR7.3b in FY23E. ABFRL has consistently improved its earnings graph, with a revenue/EBITDA CAGR of 37%/75% over FY14-19. If FY20 growth is taken into consideration, revenue/EBITDA CAGR stands at 32%/55% over FY14-20 (FY20 pre-Ind AS 116 EBITDA of INR4.5b) the brokerage has said. Motilal Oswal has further clarified in its research report that We value ABFRL on a SoTP basis, rolling forward our valuation to Sep23E. We assign an EV/EBITDA of 16x/15x to Lifestyle/Pantaloons and 1x EV/sales to other businesses, slightly upping our multiple, given the quick recovery and improving Balance Sheet. We arrive at a TP of INR350/share (from INR280 earlier). We maintain our Buy rating. The above stock has been picked from the brokerage report of Motilal Oswal. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.